"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." ~ Mark Twain

Current Position of the Market

SPX: Very Long-term trend - The very-long-term cycles are in their
down phases, and if they make their lows when expected (after this bull market
is over), there will be another steep decline into late 2014. However, the
severe correction of 2007-2009 may have curtailed the full downward pressure
potential of the 40-yr and 120-yr cycles.

Intermediate trend - SPX and some other indices have formed a H&S
top which was confirmed with last week's sell-off. A back-test of the neckline
is possible over the near-term.

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

HOLDING ACTION

Market Overview

SPX 1627/1630 was deemed to be a strong support level for a number of reasons:
including P&F and Fibonacci projections, and numerous trend and channel
lines support. I had mentioned to my subscribers that if the index was able
to hold that level for 3 or 4 days, it would increase the probability of its
having made a short-term low followed by a counter-trend rally.

SPX made an initial low at 1627.47 on 8/28, and re-tested it on 8/30 (Friday)
by printing 1628.43, and closing the week at 1632.97, thus creating what appears
to be a successful test of the low-double bottom. The positive divergences
which developed in both the daily and hourly indicators during this process
suggested that SPX would hold that level and rally. This week-end's political
developments increase the odds that this will happen, and expectations are
that, barring further developments on the Syrian situation, Tuesday should
be a positive day for the markets.

Structure: SPX and the Dow Industrials continue to form a different
pattern than the other indexes. If Friday's low holds, we can tentatively label
it as phase A of the A-B-C correction.

Breadth: There has been enough improvement in the breadth indicators
over the past two weeks to create positive divergence in the daily indicators
and support the probability of a short-term reversal in the market trend.

P&F and Fibonacci projections: There were strong P&F and Fibonacci
projections to the 1627/1630 level which have now been satisfied. It is customary
for a counter-trend move to start after a valid projection has been reached.
This happened at 1640 and should also happen now.

Support/resistance zones: In addition to the projections to the 1630
level, at least five trend and channel lines can be counted converging in that
area, thereby creating strong support for SPX.

Sentiment: the SentimenTrader long term indicator remains uncommitted
at a neutral 50. This may suggest that a rally developing from the current
level will only be temporary and not a reversal of the primary trend.

Chart Analysis

The best chart to analyze (courtesy of QChart) in order to understand the
current market action, is still the daily chart of SPX.

On this chart, I have drawn several trend and channel lines which intersect
in the 1630 area, the combination of which should prove to be strong support.
The most important of these, of course, is the green trend line which starts
at 1343 and connects with the previous SPX correction low of 1560. Even though
it is drawn only across two points, it should prove to be a temporary deterrent
to an extension of the decline. Just as important, by meeting a strong phase
projection target to 1627/1630, the SPX is given an opportunity to engage in
the bounce which normally occurs after a valid projection has been reached.

The potential for a short-term reversal of the downtrend is increased by positive
warnings given by the indicators at the bottom of the chart. Starting with
the lowest one -- the breadth oscillator, if we focus on the blue component
(which is the slower, less volatile MA), we can see that it has turned up and
is already in an uptrend. The green arrow suggests that it has given a buy
signal. This indicator always leads the others in warning that a reversal of
the trend is coming. Look at how much lead time it gave us when it warned that
a top was in the making! It's normal function is to warn, and then wait until
the price momentum indicators are ready to follow suit.

The SRSI remains oversold, but the blue component has flattened out and seems
eager to turn up. The MACD is always late in joining the party, but its histogram
is more sensitive and is displaying positive divergence. The warning that a
counter-trend rally is about to start is very strong and is only waiting for
confirmation.

The hourly chart's primary function is to place the daily chart under
a microscope so that we can better observe what's really going on internally.

One of the first things we notice is that the price progressed from the top
of the main channel (heavy red lines) to its bottom, briefly breaking below,
rallying, and then returning to re-test the area of the first low and holding
slightly above. On Friday, it closed just under the minor downtrend line, and
looks ready to break out of it.

We also note that on the hourly chart, the green trend line from 1343 was
breached and prices did close below. If they fail to make further downside
progress and bounce back inside the trend line, it will be another indication
that this area of support is holding and it should encourage buyers to step
in.

Although I have not labeled it as such, it is clear that the downtrend from
the top has progressed in 5 distinct waves. And we know that, after 5 waves,
the market tends to change direction in a move which is contrary to the primary
market trend. Since we probably just completed an impulsive wave down from
the high, it stands to reason that the next move should be corrective. In fact,
if we are at the mid-point of the correction, this 5-wave pattern could be
the first phase of a zigzag formation which will define the entire intermediate
correction. Something to consider as a possibility.

The indicators are clearly pre-bullish, meaning that positive divergence exists
in all three. Even the stodgy (but usually reliable) MACD is displaying signs
of positive divergence.

On Friday, the market appeared ready to go in either direction, based on the
decision which would be made by the U.S. on whether or not to strike Syria
immediately. Now that this decision has been delayed, it should give traders
an incentive to enter the market, even if only on a temporary basis.

Cycles

The 11-wk cycle which caused SPX to make a low at 1640 did succumb to superior
forces and has now failed; meaning that it was not allowed to exert pressure
for 5.5 weeks on the upside, but reversed in less than a week with prices going
on to make new lows. This is a confirmation that the main trend is down.

The next 7/8-wk cycle is due around mid-September and could prove to be an
interruption in any incubating rally, if it hatches. (Perhaps turning out to
form the b wave in an upward a-b-c corrective pattern?)

Breadth

The McClellan oscillator has rallied from an oversold condition to the zero
line and, after a short consolidation, appears to be ready to move above it.
This will happen, of course, only if our assumption is correct that the 1630
level of the SPX will hold and provide the basis for a counter-trend rally
in the index.

The NYSI has continued to drop to its most negative reading of the entire
year, suggesting that the market is engaged in something more than a short-term
correction. However, the rate of decline has

slowed over the past week suggesting that selling pressure is abating. We
also note positive divergence in both the MACD and the RSI which reasserts
our assumption that a counter-trend rally is ready to start at any time.

Sentiment Indicators

The long term indicator of the SentimenTrader (courtesy of same) continues
to show a neutral reading and does not conflict with the market's ability to
start a counter-trend rally which the various technical indicators seem to
forecast.

VIX

VIX had a P&F projection to 18. It reached 17.80 on Friday, which puts
it at the top of its short-term channel, and immediately backed off. It is
still in an uptrend and would have to close below about 14 to give a sell signal.

It has matched (inversely) the move in the SPX but, on Friday displayed some
negative divergence in the 5m chart - which could be a warning that the direction
of the short-term trend is about to change.

BONDS

TLT appears to have found support around 102. It is on the verge of giving
a short-term buy signal but will do so only if it continues to rally. It may,
instead, start to form a base from which could emerge a stronger rally. Any
attempt at moving up from here would most likely only be a pause in its long-term
downtrend.

GLD (ETF for gold)

GLD has had a good oversold bounce with the assistance of its 25-wk cycle.
The cycle should be effective for another week or so before its ideal peak.
In the meantime, GLD has become overbought (at the top of its channel) and
has entered a strong resistance zone. It is also approaching its long-term
uptrend line. The purpose of this move may be to back-test the trend line before
the 25-wk cycle turns down again.

UUP (dollar ETF)

The dollar has held the bottom of its long-term channel once again and is
trying to stage a rally. It has already given a preliminary short-term buy
signal, but will have to confirm its reversal by following through.

USO (United States Oil Fund)

USO has extended its move after consolidating but it is approaching the top
of an intermediate channel where it may find some resistance which will stop
its current uptrend.

In any case, oil is being driven mostly by the events of the Middle-east and,
because of this, its moves could become unpredictable.

Summary

As of Monday at 17:30 Globex SPX futures are up 16 points on the news that
President Obama has decided to seek the approval of Congress before conducting
a strike on Syria.

On a purely technical basis, the rally is justified by the divergences which
developed in the indicators as SPX was attempting to hold its 1630 projection
level. We can tentatively label this move the bottom of the A phase of the
correction, with the rally being the beginning of the B phase.

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